Coforge faces Street wrath on lack of guidance, Cigniti acquisition

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demand environment remains tough. Usually, it takes longer for large acquisitions to eventually reap the potential benefits on revenue and deal pipeline. In effect, Coforge’s shares fell as much as 10% on Friday.

“Amid pressure on existing business, its acquisition adds to execution risk. Also, realizing synergies amid a weak demand environment may be an uphill task," said analysts from Jefferies India in a report on 2 May. “Continued disappointment on margins, weaker growth, and acquisition-related uncertainty in our view warrant a derating of Coforge," according to the analysts.

To be sure, Coforge has exhibited solid execution capabilities in the past, and this deal is likely to be earnings per share accretive, but extracting cross sell synergies may not be a cakewalk in the current backdrop. So, analysts are cautious. “We have assumed that the combined entity will do well but fall short of its $2 billion goal by a tad and that margin expansion will come in at the lower end of 150-250 bps goal," said a Nirmal Bang Institutional Equities report.

Meanwhile, in Q4FY24, sequential constant currency (CC) organic revenue grew 1.9%, lower than some analysts’ estimates. For FY24, the company delivered revenue growth of 13.3% year-on-year, closer to the lower end of its guidance of 13-16%. Earnings before interest and tax margin at 14.4% was also lower than anticipated.

Though the management expects all verticals to witness growth, it acknowledges that the demand environment remains challenging amid macro uncertainties. The total contract value of new order intake stood at $774 million in Q4 versus $354 million in Q3FY24. The executable order book over the next 12 months is $1,019 million compared with $974 million in Q3.